Three Amazing Reports On The State Of Innovation - Part II
Table of contents for State of Innovation
- Three Amazing Reports On The State Of Innovation - Part I
- Three Amazing Reports On The State Of Innovation - Part II
In our first installment, the Boston Consultancy Group identified innovation trends via a survey of over 2400 senior level executives. In this installment, Booz-Allen-Hamilton studies the world’s largest R&D investors to determine what innovation strategies succeed.
First Report: Innovation 2007 from the Boston Consultancy Group
The BAH report - The Customer Connection: The Global Innovation 1000 - defines their data set as the 1000 companies that spend the most on research and development. Their report focuses on whether or not there’s a connection between R&D spending and revenue.
What they found: nope. Just like last year, they found no correlation between R&D investment and revenue. But if you notice in the study, the authors freely interchange the words “R&D” and “innovation.” To them, an investment in R&D is the same as an investment in innovation (I hope this raises red flags in the heads of my readers, but for now, let’s stick to the study).
However, they also identified a group of companies who did “more with less” - high financial performance with low R&D spending. From this group they uncovered three categories for innovation strategy, into which they split the companies they studied:
Need Seekers: These companies actively engage current and potential customers to shape new products, services, and processes; they strive to be first to market with those products.
Market Readers: These companies watch their markets carefully, but they maintain a more cautious approach, focusing largely on creating value through incremental change.
Technology Drivers: These companies follow the direction suggested by their technological capabilities, leveraging their investment in research and development to drive breakthrough innovation and incremental change, often seeking to solve the unarticulated needs of their customers.
I think this is probably the money quote, though:
Over the past three years, companies that say their innovation strategies are tightly aligned with overall corporate objectives boasted 40 percent higher growth in operating income and 100 percent higher total shareholder returns than those whose innovation strategies are less aligned. Companies more focused on customer insight or market needs are also more successful than their less-customer-focused peers. In particular, companies that directly engaged their customer base had twice the return on assets and triple the growth in operating income of the other survey respondents.
What follows is an interesting series of side by side comparisons between the Need Seekers, Market Readers, and Technology Drivers. Here’s a pretty cool graphic showing how the three perform in four innovation areas:
Some more interesting things they found:
- The Need Seekers’ drive to be first to market is rewarded on Wall Street. Need Seeker companies’ stock value and market cap increased 40 percent more than those of the other two groups.
- Technology Drivers had about the same average gains as the other two, but as a group included the companies with the highest and lowest gains overall. This reflects the higher level of risk associated with their strategy, and the associated higher level of reward.
The study concludes with this observation:
Is there a best innovation strategy? No. All three of the strategies outlined above can succeed in the marketplace. Is there a best innovation strategy for any given company? Yes. It is the approach that best suits — and is most closely aligned with — the company’s overall corporate strategy and the competitive environment in which the company operates.
My thoughts:
1. For the second year in a row, the survey has concluded that, overall, the Top 1000 R&D spenders don’t get any more bang for the buck on their R&D spending than anyone else. This conclusion has been drawn by others for quite some time now. Let’s all agree that new product investment is probably the worst barometer for innovation effectiveness, and start looking at other criteria.
2. The three successful innovation strategies work within the study parameters to be sure. What other strategies work? How about companies that focus their innovation efforts on business model or branding?
3. I think the study conclusion is misguided due, again, to the initial criteria. There most likely IS a best innovation strategy - one that combines the most effective innovation target areas in a creative way, one that’s hard to copy.
Part III will focus on a survey from McKinsey & Company.
Comments
One Response to “Three Amazing Reports On The State Of Innovation - Part II”
Leave a Reply
[...] links to related web news and blog articles on whatever’s in your post (try it out here, the link is at the bottom of the [...]